The S&P CoreLogic Case-Shiller Indices came out today, showing yet another increase in home prices in July at a slightly faster rate than June. In fact, this increase was just 0.6% short of the record high set in July 2006.
The industry’s reaction compared this increase to the recent increase in household income. All seem to agree that while home prices are increasing, the recent rise in income, which rose at a faster rate than home prices, could eventually ease the affordability problems with homeownership.
“Today’s release shows that home prices continue to grow at a steady pace,” Zillow Chief Economist Svenja Gudell said. “This price growth is, among other factors, supported by solid gains in incomes.”
Household income posted its first significant increase in eight years, an increase of 5.2%, data from the U.S. Census Bureau showed.
“In fact, the latest household income numbers hold good news: for the first time in recent memory, income growth is keeping pace with and even slightly exceeding home value growth nationwide,” Gudell said. “The bad news: incomes are so far behind that they need to do a lot of catching up before homes become more affordable, especially for those at the bottom of the income distribution and in the country’s most expensive markets.”
Other experts agree that more wage inflation is needed in order to the market to fully recover.
“The real estate indices are beginning to show a slowdown in home price appreciation,” Brent Nyitray, iServe Residential Lending director of capital markets, wrote in his morning report he emails to clients. “Until we start seeing wage inflation, real estate prices will be stretched versus incomes.”
Quicken Loans Vice President Bill Banfield shared similar sentiments.
“Despite recent data pointing to slower sales, home prices continue to rise faster than incomes in many areas,” Banfield said. “Low inventory will continue to be a challenge for buyers looking for the right home and can cause those bidding to be more aggressive on the house they finally want to purchase.”
In fact, there may even be signs of relief to the affordability crisis if the trend continues.
“July home prices bucked the previous five-month downward trend of gains, but ticked up only marginally to 5.1% from June’s 5% increase,” Trulia Chief Economist Ralph McLaughlin said. “This suggests affordability pressures may start to ease as incomes show signs of outpacing prices.”
Out of the 20 cities, Portland, Seattle and Denver reported the highest annual gains over the last six months, the Case-Shiller index showed. In July, Portland increased 12.4%, Seattle increased 11.2% and Denver increased 9.4%.
“Home prices in San Francisco and Los Angeles continue cooling in July, while prices in Seattle and Portland have another strong showing,” McLaughlin said. “The Pacific Northwest is to the housing market now what California was at beginning of the recovery: a beacon of strong gains in employment, income, and quality of life.”
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